UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 19, 2014
Lexicon Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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000-30111 |
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76-0474169 |
(State or other jurisdiction of
incorporation or organization) |
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(Commission
File Number) |
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(I.R.S. Employer
Identification Number) |
8800 Technology Forest Place
The Woodlands, Texas 77381
(Address of principal executive offices and Zip Code)
(281) 863-3000
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligations of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01 |
Regulation FD Disclosure |
On November 19, 2014, Lexicon Pharmaceuticals, Inc. (the
Company) issued a press release announcing that it is offering $50.0 million of its common stock, par value $0.001 per share, in a public offering pursuant to an effective registration statement on Form S-3 (File No. 333-198493). A
copy of the press release is filed as Exhibit 99.1 hereto and incorporated herein by reference.
Concurrent with the offering of its
common stock to the public described above, the Company expects to enter into a stock purchase agreement (the Stock Purchase Agreement) with Invus, L.P. and Artal International S.C.A. (Artal), pursuant to which Artal will
agree to purchase and we will agree to issue to Artal, an aggregate of $150 million of shares of our common stock at a price per share equal to the price per share paid by the public in the offering described above.
On November 19, 2014, the Company issued a press release announcing that it is offering $75.0 million in aggregate principal amount of
convertible senior notes in a private offering. A copy of the press release is filed as Exhibit 99.2 hereto and incorporated herein by reference.
The information in this Current Report on Form 8-K, including Exhibit 99.1 and 99.2, is being furnished pursuant to Item 7.01 of Form 8-K
and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the
Securities Act of 1933, as amended (the Securities Act).
In connection with the transactions described above, the Company updated
the description of its business and its risk factors in the disclosures provided to investors in the offerings described above. The updated description of the Companys business is set forth in Exhibit 99.3 to this Current Report on Form 8-K
and is incorporated by reference herein. The updated description of the Companys risk factors provided to investors in the public offering of the Companys common stock is set forth in Exhibit 99.4 to this Current Report on Form 8-K and
is incorporated by reference herein.
Item 9.01 |
Financial Statements and Exhibits |
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Exhibit Number |
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Description |
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99.1 |
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Press Release dated November 19, 2014. |
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99.2 |
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Press Release dated November 19, 2014. |
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99.3 |
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Business Description. |
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99.4 |
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Risk Factors. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
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Lexicon Pharmaceuticals, Inc. |
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Date: |
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November 20, 2014 |
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By: |
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/s/ BRIAN T. CRUM |
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Brian T. Crum |
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Vice President and General Counsel |
Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
LEXICON ANNOUNCES PROPOSED COMMON STOCK OFFERING
The Woodlands, Texas, November 19, 2014 Lexicon Pharmaceuticals, Inc. (Nasdaq: LXRX) today announced that it commenced an offering to sell,
subject to market and other conditions, $50,000,000 of shares of its common stock pursuant to an effective shelf registration statement in an underwritten public offering. Lexicon also intends to grant the underwriters a 30-day option to purchase up
to $7,500,000 of additional shares of common stock. All of the shares in the offering are to be sold by Lexicon. J.P. Morgan Securities, LLC and Goldman, Sachs & Co. will be acting as joint book-runners for the offering and
Needham & Company, LLC and Stifel, Nicolaus & Company, Incorporated will be acting as co-managers for the offering.
This press release
does not constitute an offer to sell, or the solicitation of an offer to buy, these securities, nor will there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale is not permitted. The offering of
these securities will be made only by means of a preliminary prospectus supplement and accompanying prospectus forming a part of the effective shelf registration statement, copies of which may be obtained from J.P. Morgan Securities LLC via
Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, New York 11717, or by telephone at 866-803-9204 or from Goldman, Sachs & Co., 200 West Street, New York, NY 10282, Attention: Prospectus Department, or by telephone at
866-471-2526 or by e-mail at prospectus-ny@ny.email.gs.com.
The issuer has filed a registration statement
(including a prospectus) with the Securities and Exchange Commission for an offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and related preliminary prospectus supplement
and other documents that the issuer has filed or will file with the Securities and Exchange Commission for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the Securities and
Exchange Commissions website at www.sec.gov. Alternatively, you may obtain a preliminary prospectus supplement and accompanying prospectus as indicated above.
About Lexicon
Lexicon is a biopharmaceutical company
focused on developing breakthrough treatments for human disease. Lexicon has clinical-stage drug programs for diabetes, carcinoid syndrome, and other indications, all of which were discovered by Lexicons research team. Lexicon has used its
proprietary gene knockout technology to identify more than 100 promising drug targets.
Safe Harbor Statement
This press release contains forward-looking statements, including statements related to Lexicons expectations regarding the completion,
timing and size of the proposed offering and private placement. Any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Words such as will,
intends and similar expressions are intended to identify these forward-looking statements. There are a number of important factors that could cause Lexicons results to differ materially from those indicated by these forward-looking
statements, including
risks and uncertainties related to market conditions and the satisfaction of customary closing conditions related to the proposed public offering. There can be no assurance that Lexicon will be
able to complete the proposed public offering or private placement on the anticipated terms, or at all. Additional risks and uncertainties relating to the proposed public offering and the private placement, Lexicon and its business can be found
under the heading Risk Factors in Lexicons filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2013, and under the heading Risk Factors in
the preliminary prospectus supplement related to the proposed public offering of common stock to be filed with the Securities and Exchange Commission. Unless required by applicable law, Lexicon undertakes no obligation to update or revise any such
forward-looking statements, whether as a result of new information, future events or otherwise.
# # #
Contact for Lexicon:
Chas Schultz
Senior Director, Finance and Communications
281/863-3421
cschultz@lexpharma.com
Page 2
Exhibit 99.2
NEWS RELEASE
FOR IMMEDIATE RELEASE
LEXICON ANNOUNCES PROPOSED CONVERTIBLE SENIOR NOTES OFFERING
The Woodlands, Texas, November 19, 2014 Lexicon Pharmaceuticals, Inc. (Nasdaq: LXRX) today announced that it commenced an offering to sell,
subject to market and other conditions, $75,000,000 aggregate principal amount of convertible senior notes due 2021 (the Convertible Notes) in a private offering within the United States to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933, as amended (the Securities Act). Lexicon also expects to grant to the initial purchaser an option to purchase up to an additional $11,250,000 aggregate principal amount of the Convertible Notes on
the same terms and conditions, solely to cover over-allotments.
The Convertible Notes will be the general senior unsecured obligations of Lexicon and
will accrue interest payable semi-annually in arrears. The Convertible Notes will be convertible into Lexicons common stock. The interest rate, conversion rate, offering price and other terms of the Convertible Notes will be determined by
negotiations among Lexicon and the initial purchasers of the notes.
Lexicon intends to use the net proceeds from the offering for the clinical
development of its drug candidates and other nonclinical research and development efforts. It may also use a portion of the net proceeds to acquire or invest in complementary products and technologies or for general corporate purposes.
Holders of the Convertible Notes will have the right to require Lexicon to repurchase for cash all or a portion of their Convertible Notes at 100% of their
principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the indenture relating to the Convertible Notes). Lexicon will also be required to increase the conversion rate for holders who
convert their Convertible Notes in connection with certain fundamental changes occurring prior to the maturity date.
The Convertible Notes (including the
shares of Lexicons common stock into which the Convertible Notes are convertible) have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
This press release is being issued pursuant to Rule 135c under the Securities
Act, and does not constitute an offer to sell, or the solicitation of an offer to buy, these securities (including the shares of Lexicons common stock into which the Convertible Notes are convertible), nor will there be any sale of these
securities in any state or jurisdiction in which such offer, solicitation or sale is not permitted. Any offers of the Convertible Notes will be made only by means of a private offering memorandum.
Safe Harbor Statement
This press release contains
forward-looking statements, including statements related to Lexicons expectations regarding the completion, timing and size of the proposed offering. Any statements
contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Words such as will, intends and similar
expressions are intended to identify these forward-looking statements. There are a number of important factors that could cause Lexicons results to differ materially from those indicated by these forward-looking statements, including risks and
uncertainties related to market conditions and the satisfaction of customary closing conditions related to the proposed offering. There can be no assurance that Lexicon will be able to complete the proposed offering on the anticipated terms, or at
all. Additional risks and uncertainties relating to Lexicon and its business can be found under the heading Risk Factors in Lexicons filings with the Securities and Exchange Commission, including its annual report on Form 10-K for
the year ended December 31, 2013. Unless required by applicable law, Lexicon undertakes no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.
# # #
Contact
for Lexicon:
Chas Schultz
Senior Director,
Finance and Communications
281/863-3421
cschultz@lexpharma.com
Page 2
Exhibit 99.3
Lexicon Pharmaceuticals is a biopharmaceutical company focused on the development of breakthrough treatments for human disease. We have advanced multiple drug
candidates into clinical development. We are presently devoting most of our resources to the development of our two most advanced drug candidates:
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We are developing telotristat etiprate, or LX1032, an orally-delivered small molecule drug candidate, as a treatment for carcinoid syndrome. We have completed two Phase 2 clinical trials and are presently conducting a
single pivotal Phase 3 clinical trial of telotristat etiprate in carcinoid syndrome patients. The Phase 3 clinical trial of telotristat etiprate is a 12-week, placebo-controlled study of approximately 120 to 130 patients with inadequately
controlled carcinoid syndrome on background somatostatin analog therapy (including at least 105 patients on octreotide therapy), followed by a 36-week, open-label extension where all patients receive telotristat etiprate. Two dose levels of
telotristat etiprate, 250 mg and 500 mg, three times daily (TID), are being tested along with placebo. The primary efficacy endpoint under evaluation in the Phase 3 clinical trial is the number of daily bowel movements, with secondary efficacy
endpoints including changes in urinary 5-HIAA levels, flushing episodes, abdominal pain and quality of life measures. The Phase 3 program of telotristat etiprate also includes an additional companion study in carcinoid syndrome patients who do not
meet the inclusion criteria for the pivotal Phase 3 clinical trial. We presently expect to complete enrollment in the single pivotal Phase 3 clinical trial in early 2015 and report top-line data from such trial in the third quarter of 2015. If
supported by such data, we anticipate filing an NDA for telotristat etiprate in carcinoid syndrome in the first quarter of 2016 with potential FDA approval and commercial launch in the second half of 2016. |
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We are developing sotagliflozin, or LX4211, an orally-delivered small molecule drug candidate, as a treatment for type 1 and type 2 diabetes. We have completed two Phase 2 clinical trials of sotagliflozin in type 2
diabetes patients and an additional clinical trial of sotagliflozin in type 2 diabetes patients with renal impairment. We have also completed a Phase 2 clinical trial of sotagliflozin in type 1 diabetes patients. We are preparing for the initiation
of a Phase 2 clinical trial of sotagliflozin in a younger adult type 1 diabetes population in collaboration with JDRF, from which we presently expect to report top-line data in the first quarter of 2016. We are also preparing for the initiation of
Phase 3 development of sotagliflozin in type 1 diabetes in the first half of 2015. The Phase 3 development of sotagliflozin in type 1 diabetes is expected to include three Phase 3 studies, including two pivotal Phase 3 studies. Each of the pivotal
Phase 3 studies are 24-week, placebo-controlled studies of approximately 750 patients, which will be followed by 28-week extensions. Two dose levels of sotagliflozin, 200mg and 400mg once daily, will be tested along with placebo. The primary
efficacy endpoint under evaluation will be reduction of A1C versus placebo on optimized insulin treatment at 24 weeks, with secondary endpoints including percentage of patients achieving A1C levels of less than 7%, reduction in meal-time, or bolus,
insulin use and weight loss. We presently expect to report topline data from such trials in the fourth quarter of 2016. The third Phase 3 study would be expected to enroll 1,400 patients and involve a glycemic control primary endpoint and an
evaluation of safety. We also plan to conduct a dose-ranging study of sotagliflozin in patients with type 1 diabetes concurrently with our planned Phase 3 studies. We do not intend to continue development of sotagliflozin in type 2 diabetes unless
we find a collaboration partner. |
Our most advanced drug candidates, as well as compounds from a number of additional drug discovery and
development programs that we have advanced into various stages of clinical and nonclinical development, originated from our own internal drug discovery efforts. These efforts were driven by a systematic, targeted biology-driven approach in which we
used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and
behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets. We identified and validated in
living animals, or in vivo, more than 100 targets with promising profiles for drug discovery.
We are working both independently and through strategic
collaborations and alliances with third parties to capitalize on our drug discovery and development programs. We seek to retain exclusive rights to the benefits of certain drug discovery and development programs by developing and commercializing
drug candidates from those programs internally and to collaborate with other pharmaceutical and biotechnology companies with respect to the development and commercialization of drug candidates from other programs, particularly when the collaboration
may provide us with access to expertise and resources that we do not possess internally or are complementary to our own.
Recent developments
Sotagliflozin (LX4211)
We reported top-line data in April
2014 from a Phase 2 clinical trial evaluating the safety and tolerability of sotagliflozin and its effects on glycemic parameters associated with type 1 diabetes. The Phase 2 trial enrolled 36 patients with type 1 diabetes. An initial cohort
consisted of three patients treated with a 400 mg once daily dose of sotagliflozin for a period of four weeks. A subsequent cohort of 33 patients were enrolled in the randomized, double-blind, placebo-controlled portion of the study and were treated
with a 400mg once daily dose of sotagliflozin or placebo for a period of four weeks. The primary efficacy endpoint under evaluation in the trial was reduction in bolus insulin use. Secondary endpoints included multiple parameters of glycemic
control, basal and total insulin use and other metabolic, pharmacodynamic and pharmacokinetic parameters. Top-line data from the study showed that treatment with sotagliflozin demonstrated statistically significant benefits in the primary and
multiple secondary endpoints. Patients treated with sotagliflozin experienced a reduction in their total daily mealtime bolus insulin dose of 32% compared to 6% for patients who received placebo (p=0.007). We also observed a significant improvement
in glycemic control, with a mean A1C reduction of 0.55% in the sotagliflozin-treated group compared to a reduction of 0.06% in the placebo-treated group (p=0.002). These observations were also accompanied by significant improvement in the time spent
in a glucose range of 70-180 mg/dl, a significant reduction in time in hyperglycemic range (>180 mg/dl) and no increase in hypoglycemia. Multiple measures also indicated that patients treated with sotagliflozin experienced reduced variability in
blood glucose levels. Sotagliflozin was well tolerated with no discontinuations of study medication due to adverse events.
Ipsen license and
collaboration agreement
In October 2014, we entered into a license and collaboration agreement with Ipsen Pharma SAS, or Ipsen, pursuant to which we
granted Ipsen an exclusive, royalty-bearing right and license to commercialize telotristat etiprate outside of the United States, Canada and Japan. Ipsen paid us an upfront payment of $23 million and we are eligible to receive up to approximately
$30 million upon the achievement of specified regulatory and commercial launch milestones and up to 72 million upon the achievement of specified sales milestones. We are also entitled to tiered, escalating royalties ranging from low
twenties to mid-thirties percentages of net sales of telotristat etiprate in the licensed territory, subject to a credit for Ipsens payments to us for the manufacture and supply of such units of telotristat etiprate. Our receipt of these
payments from Ipsen will trigger our obligation to make certain contingent payments to Symphony Icon Holdings LLC, or Holdings, pursuant to our prior arrangement with Holdings for the financing of the clinical development of telotristat etiprate.
Ipsen may terminate this agreement upon a specified period of notice to us at any time.
Exhibit 99.4
Risk factors
An investment in our common stock involves risks. You should carefully consider the following risk factors, together with all of the other
information included in, or incorporated by reference into, this prospectus supplement and the accompanying prospectus in evaluating an investment in our common stock including the information in our Annual Report on Form 10-K for the year ended
December 31, 2013 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014. If any of the following risks were to occur, our business, financial condition or results of operations could be
materially adversely affected. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.
Risks related to our need for additional financing and our financial results
We will need additional capital in the future and, if it is unavailable, we will be forced to significantly curtail or cease our
operations. If it is not available on reasonable terms, we will be forced to obtain funds, if at all, by entering into financing agreements on unattractive terms.
As of September 30, 2014, we had $57.9 million in cash, cash equivalents and investments. We anticipate that the proceeds from this
offering, the concurrent notes offering and the concurrent private placement, our existing capital resources and the cash and revenues we expect to derive from collaborations and other sources will enable us to fund our currently planned operations
for at least the next 12 months. However, we caution you that we may not consummate either the concurrent notes offering or the concurrent private placement and we may generate less cash and revenues or incur expenses more rapidly than we currently
anticipate. Our currently planned operations for the next twelve months consist of (i) the completion of our single pivotal Phase 3 clinical trial of telotristat etiprate in carcinoid syndrome patients and, if successful, continued preparations
for the commercialization of telotristat etiprate, (ii) a companion Phase 3 clinical trial of telotristat etiprate to study safety and 5-hydroxyindoleacetic acid in a separate patient population, with a targeted enrollment of approximately 60
patients, (iii) a Phase 2 clinical trial of sotagliflozin in a younger adult type 1 diabetes population and (iv) three concurrent Phase 3 clinical trials for sotagliflozin in type 1 diabetes, which we expect to enroll an aggregate of 2,900
patients, and a doseranging study of sotagliflozin. In addition, we cannot be certain as to what type and how many clinical trials the FDA, or equivalent foreign regulatory agencies, will require us to conduct in order to gain approval to
market either telotristat etiprate or sotagliflozin.
Although difficult to accurately predict, the amount of our future capital
requirements will be substantial and will depend on many factors, including:
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the timing and progress of our single pivotal Phase 3 clinical trial of telotristat etiprate in carcinoid syndrome patients, including completing enrollment in the trial and our ability to obtain priority review on any
potential NDA submission; |
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if approved, our ability to commercialize telotristat etiprate on the timeline anticipated; |
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the amount and timing of payments, if any, under existing and any future collaboration agreements; |
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the amount and timing of our nonclinical development expenditures; |
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the timing and progress of the clinical development of telotristat etiprate and sotagliflozin, including the timing of any required regulatory actions, the outcome of our anticipated discussions with regulators and the
outcome of our sotagliflozin doseranging study, which we are planning to conduct concurrently with our two pivotal Phase 3 efficacy trials; |
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future results from clinical trials of our drug candidates; |
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the cost and timing of regulatory approvals and commercialization of drug candidates that we successfully develop; |
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market acceptance of products that we successfully develop and commercially launch; |
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the effect of competing programs and products, and of technological and market developments; |
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the filing, maintenance, prosecution, defense and enforcement of patent claims and other intellectual property rights; and |
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the cost and timing of establishing or contracting for sales, marketing and distribution capabilities of any approved drug candidate. |
Our capital requirements have and will continue to increase substantially as our drug candidates progress into more advanced stage clinical
development. Our capital requirements will also be affected by any expenditures we make in connection with license agreements and acquisitions of and investments in complementary products and technologies. For all of these reasons, our future
capital requirements cannot easily be quantified.
If our capital resources are insufficient to meet future capital requirements, we will
need to raise additional funds to continue our currently planned operations. If we raise additional capital by issuing equity securities, our then-existing stockholders will experience dilution and the terms of any new equity securities may have
preferences over our common stock. We cannot be certain that additional financing, whether debt or equity, will be available in amounts or on terms acceptable to us, if at all. We may be unable to raise sufficient additional capital on reasonable
terms, and if so, we will be forced to significantly curtail or cease our operations or obtain funds, if at all, by entering into financing agreements on unattractive terms.
We have a history of net losses, and we expect to continue to incur net losses and may not achieve or maintain profitability.
We have incurred net losses since our inception, including net losses of $97.4 million for the nine months ended
September 30, 2014, $104.1 million for the year ended December 31, 2013, $110.2 million for the year ended December 31, 2012 and $116.2 million for the year ended December 31, 2011. As of September 30, 2014, we had an
accumulated deficit of $1.1 billion. We are unsure when we will become profitable, if ever. The size of our net losses will depend, in part, on the rate of decline or growth in our revenues and on the level of our expenses. We expect net losses to
increase significantly over the next several years as we expect to make significant investments in the development and commercialization of telotristat etiprate and sotagliflozin.
We have derived substantially all of our revenues from drug discovery and development collaborations and other collaborations and technology
licenses. Future revenues from our existing collaborations are uncertain because they depend, to a large degree, on the achievement of milestones and payment of royalties we earn from any future products developed under the collaborations. As a
result, we depend, in part, on securing new collaboration agreements. Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators, and to negotiate agreements
that we believe are in our long-term best interests. We may determine, as we have with certain of our clinical drug candidates, including telotristat etiprate (in the United States, Canada and Japan) and sotagliflozin, that our interests are better
served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues and increase our expenses. Given the current stage of our operations, we do not currently derive any
revenues from sales of pharmaceutical products.
A large portion of our expenses is fixed, including expenses related to facilities and
equipment. In addition, we expect to spend significant amounts to fund our nonclinical and clinical development activities, including the conduct of ongoing and planned clinical trials for telotristat etiprate and sotagliflozin. If successful, we
will also
be required to incur substantial expenditures in preparation for and to conduct commercialization activities with respect to telotristat etiprate and sotagliflozin. As a result, we will need to
generate substantial additional revenues to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Our operating results have been and likely will continue to fluctuate, and we believe that period-to-period comparisons of our operating
results are not a good indication of our future performance.
Our operating results and, in particular, our ability to generate
additional revenues are dependent on many factors, including:
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our ability to establish new collaborations and technology licenses, and the timing of such arrangements; |
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the success rate of our discovery and development efforts leading to opportunities for new collaborations and licenses, as well as milestone payments and royalties; |
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the timing and willingness of our collaborators to commercialize pharmaceutical products that would result in milestone payments and royalties; and |
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general and industry-specific economic conditions, which may affect our and our collaborators research and development expenditures. |
Because of these and other factors, including the risks and uncertainties described in this section, our operating results have fluctuated in
the past and are likely to do so in the future. Due to the likelihood of fluctuations in our revenues and expenses, we believe that period-to-period comparisons of our operating results are not a good indication of our future performance.
The concurrent notes offering will result in substantial indebtedness that may limit cash flow available to invest in the ongoing needs
of our business.
Assuming the consummation of the concurrent notes offering, we will have a significant amount of indebtedness.
We will incur $75.0 million of additional indebtedness if and when we sell the notes in the concurrent notes offering, or $86.25 million of additional indebtedness if the initial purchasers in that offering exercise in full their over-allotment
option. We could in the future incur additional indebtedness beyond such amounts. We will not be restricted under the terms of the indenture governing the notes offered in the concurrent notes offering from incurring additional debt. Our substantial
debt combined with our other financial obligations and contractual commitments could have significant adverse consequences, including:
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requiring us to dedicate a substantial portion of cash flow from operations to the payment of interest on, and principal of, our debt, which will reduce the amounts available to fund working capital, capital
expenditures, product development efforts and other general corporate purposes; |
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increasing our vulnerability to adverse changes in general economic, industry and market conditions; |
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obligating us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; |
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limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and |
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placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options. |
We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents and marketable securities and
funds from external sources. However, we may not have sufficient funds or may
be unable to arrange for additional financing to pay the amounts due under our existing debt. Funds from external sources may not be available on acceptable terms, if at all. In addition, a
failure to comply with the covenants under our existing debt instruments could result in an event of default under those instruments. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default,
including upon the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, properties, assets or condition or a failure to pay any amount due, we may not have sufficient funds or may be
unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and the lenders could seek to enforce security interests in the collateral securing such indebtedness. In addition, the covenants under our
existing debt instruments and the pledge of our assets as collateral limit our ability to obtain additional debt financing.
We may
not have the ability to raise the funds necessary to repurchase the notes sold in the concurrent notes offering upon a fundamental change, and our future debt may contain limitations on our ability to repurchase the notes.
Holders of any notes we sell in the concurrent notes offering will have the right to require us to repurchase their notes upon the occurrence
of a fundamental change at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any. However, we may not have enough available cash or be able to obtain financing at the time we are required to make
repurchases of notes surrendered therefor. In addition, our ability to repurchase the notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase notes at a time when the
repurchase is required by the indenture pursuant to which the concurrent notes will be issued would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under
agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes.
Risks related to development of our drug candidates
We have not proven our ability to successfully develop and commercialize our drug candidates.
Our success will depend upon our ability, on our own or through collaborations, to successfully develop and select an appropriate
commercialization strategy for our drug candidates. We have not proven our ability to develop or commercialize drug candidates based on our drug target discoveries, and we do not know that any pharmaceutical products based on our drug target
discoveries can be successfully developed or commercialized. Our strategy was historically focused principally on the discovery and development of drug candidates for targets that have not been clinically validated in humans by drugs or drug
candidates generated by others. As a result, our drug candidates are subject to uncertainties as to the effects of modulating the human drug target as well as to those relating to the characteristics and activity of the particular compound.
Clinical testing of our drug candidates in humans is an inherently risky and time-consuming process that may fail to demonstrate safety
and efficacy, which could result in the delay, limitation or prevention of regulatory approval.
In order to obtain regulatory
approvals for the commercial sale of any products that we may develop, we will be required to complete extensive clinical trials in humans to demonstrate the safety and efficacy of our drug candidates. We or our collaborators may not be able to
obtain authority from the FDA, or other equivalent foreign regulatory agencies to initiate or complete any clinical trials. In addition, we have limited internal resources for making regulatory filings and interacting with regulatory authorities.
Clinical trials are inherently risky and the results from nonclinical testing of a drug candidate
that is under development may not be predictive of results that will be obtained in human clinical trials. In addition, the results of early human clinical trials may not be predictive of results that will be obtained in larger-scale, advanced stage
clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after achieving positive results in earlier trials. Although the results of our Phase 2 proof-of-concept study
of sotagliflozin in type 1 diabetes patients were positive, we cannot assure you that the planned Phase 3 clinical trials of sotagliflozin will achieve positive results. A number of factors could contribute to a lack of positive results in such
Phase 3 clinical trials, including a primary endpoint in such planned Phase 3 clinical trials, which has not previously been utilized for such purpose. Negative or inconclusive results from a nonclinical study or a clinical trial could cause us, one
of our collaborators or the FDA to terminate a nonclinical study or clinical trial or require that we repeat or modify it. For example, concurrently with our planned Phase 3 clinical trials in our type 1 diabetes program, we plan to conduct a
dose-ranging study of sotagliflozin in patients with type 1 diabetes as required by the FDA. If the results of the dose-ranging study are inconsistent with the design of our Phase 3 trials of sotaglifozin, such as suggesting that there is an
effective dose of sotagliflozin in patients with type 1 diabetes lower than the doses we are studying in our Phase 3 clinical trials of sotagliflozin, we may be required to modify those Phase 3 clinical trials which could significantly delay the
completion of the trials. Furthermore, we, one of our collaborators or a regulatory agency with jurisdiction over the trials may suspend clinical trials at any time if the subjects or patients participating in such trials are being exposed to
unacceptable health risks or for other reasons.
Any nonclinical or clinical test may fail to produce results satisfactory to the FDA or
foreign regulatory authorities. Nonclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. For example, the FDA suggested we study sotaglifozin in both type 1 and type 2 diabetes
concurrently rather than only in type 1 diabetes. This could influence the way in which the FDA interprets the results of our trials of sotaglifozin. The FDA or institutional review boards at the medical institutions and healthcare facilities where
we sponsor clinical trials may suspend any trial indefinitely if they find deficiencies in the conduct of these trials. Clinical trials must be conducted in accordance with the FDAs current Good Clinical Practices. The FDA and these
institutional review boards have authority to oversee our clinical trials, and the FDA may require large numbers of subjects or patients. In addition, we must manufacture, or contract for the manufacture of, the drug candidates that we use in our
clinical trials under the FDAs current Good Manufacturing Practices.
The rate of completion of clinical trials is dependent, in
part, upon the rate of enrollment of patients. Patient accrual is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, the nature of the study,
the existence of competitive clinical trials and the availability of alternative treatments. Delays in planned patient enrollment may result in increased costs and prolonged clinical development, which in turn could allow our competitors to bring
products to market before we do and impair our ability to commercialize our products or potential products.
We or our collaborators may
not be able to successfully complete any clinical trial of a potential product within any specified time period. In some cases, we or our collaborators may not be able to complete the trial at all. Moreover, clinical trials may not show our
potential products to be both safe and effective. Thus, the FDA and other regulatory authorities may not approve any products that we develop for any indication or may limit the approved indications or impose other conditions.
Risks related to regulatory approval of our drug candidates
Our drug candidates are subject to a lengthy and uncertain regulatory process that may not result in the necessary regulatory approvals,
which could adversely affect our ability to commercialize products.
Our drug candidates, including telotristat etiprate and sotagliflozin, as well as the activities
associated with their research, development and commercialization, are subject to extensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain regulatory
approval for a drug candidate would prevent us from commercializing that drug candidate. We have not received regulatory approval to market any of our drug candidates in any jurisdiction and have only limited experience in preparing and filing the
applications necessary to gain regulatory approvals. The process of obtaining regulatory approvals is expensive, and often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of
the drug candidates involved. Before a new drug application can be filed with the FDA, the drug candidate must undergo extensive clinical trials, which can take many years and may require substantial expenditures. Any clinical trial may fail to
produce results satisfactory to the FDA. For example, the FDA could determine that the design of a clinical trial is inadequate to produce reliable results. Furthermore, prior to approving a new drug, the FDA typically requires that the efficacy of
the drug be demonstrated in two double-blind, controlled studies. In light of the unmet medical need in carcinoid syndrome, the results of our Phase 2 clinical trials of telotristat etiprate and our interactions with the FDA regarding those results,
we believe a single Phase 3 clinical trial of telotristat etiprate will be sufficient. However, the FDA has indicated that the trial must demonstrate statistically robust evidence of important clinical benefit and an acceptable safety profile in
order to warrant consideration for marketing approval. If the FDA determines that our Phase 3 results do not have statistically robust results or clinically meaningful benefit, or if the FDA requires us to conduct additional Phase 3 clinical trials
of telotristat etiprate prior to seeking marketing approval, we will incur significant additional development costs and commercialization of telotristat etiprate may be prevented or delayed. The regulatory process also requires nonclinical testing,
and data obtained from nonclinical and clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. For example, we will need to complete certain nonclinical studies on a pre-approval basis
in connection with our diabetes program, including carcinogencity and toxicology. In our carcinoid syndrome program, we will need to conduct carcinogenicity studies on a post-approval basis and drug interaction studies on a pre-approval basis.
Negative results in any of these nonclinical studies could delay or prevent approval of our product candidates. In addition, delays or rejections may be encountered based upon changes in regulatory policy for product approval during the period of
product development and regulatory agency review. Changes in regulatory approval policy, regulations or statutes or the process for regulatory review during the development or approval periods of our drug candidates may cause delays in the approval
or rejection of an application. For example, the FDA may expand to Phase 3 programs for type 1 diabetes its current requirement that Phase 3 programs for type 2 diabetes include studies designed to measure cardiovascular outcomes. The FDA has asked
that we submit a cardiovascular risk assesment of sotagliflozin. If the risk assesment suggests a higher than acceptable cardiovascular risk or if the FDA requests that we submit cardiovascular outcome data for sotagliflozin, it could significantly
delay or prevent approval. Even if the FDA or a comparable authority in another country approves a drug candidate, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion,
marketing and/or production of such product and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials. These agencies also may impose various civil or criminal sanctions for
failure to comply with regulatory requirements, including withdrawal of product approval.
If our potential products receive
regulatory approval, we or our collaborators will remain subject to extensive and rigorous ongoing regulation.
If we or our
collaborators obtain initial regulatory approvals from the FDA or foreign regulatory authorities for any products that we may develop, we or our collaborators will be subject to extensive and rigorous ongoing domestic and foreign government
regulation of, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing of our products and drug candidates. The failure to comply with these requirements or the identification
of safety problems during commercial marketing could lead
to the need for product marketing restrictions, product withdrawal or recall or other voluntary or regulatory action, which could delay further marketing until the product is brought into
compliance. The failure to comply with these requirements may also subject us or our collaborators to stringent penalties.
Risks related to
commercialization of products
The commercial success of any products that we may develop will depend upon the degree of market
acceptance of our products among physicians, patients, health care payors, private health insurers and the medical community.
Even
if approved by the relevant regulatory authority, our ability to commercialize any products that we may develop will be highly dependent upon the extent to which these products gain market acceptance among physicians, patients, health care payors,
such as Medicare and Medicaid, private health insurers, including managed care organizations and group purchasing organizations, and the medical community. If these products do not achieve an adequate level of acceptance, we may not generate
adequate product revenues, if at all, and we may not become profitable. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend upon a number of factors, including:
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the effectiveness, or perceived effectiveness, of our products in comparison to competing products; |
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the existence of any significant side effects, as well as their severity in comparison to any competing products; |
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potential advantages over alternative treatments; |
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the ability to offer our products for sale at competitive prices; |
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relative convenience and ease of administration; |
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the strength of marketing and distribution support; and |
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sufficient third-party coverage or reimbursement. |
If we are unable to establish sales
and marketing capabilities or enter into agreements with third parties to market and sell our drug candidates, we may be unable to generate product revenues.
We have no experience as a company in the sales, marketing and distribution of pharmaceutical products and do not currently have a sales and
marketing organization. Developing a sales and marketing force would be expensive and time-consuming, could delay any product launch, and we may never be able to develop this capacity. To the extent that we enter into arrangements with third parties
to provide sales, marketing and distribution services, our product revenues are likely to be lower than if we market and sell any products that we develop ourselves. If we are unable to establish adequate sales, marketing and distribution
capabilities, independently or with others, we may not be able to generate product revenues.
If we are unable to obtain adequate
coverage and reimbursement from third-party payors for any products that we may develop, our revenues and prospects for profitability will suffer.
Our ability to commercialize any products that we may develop will be highly dependent on the extent to which coverage and reimbursement for
our products will be available from third-party payors, including governmental payors, such as Medicare and Medicaid, and private health insurers, including managed care organizations and group purchasing organizations. Many patients will not be
capable of paying themselves for some or all of the products that we may develop and will rely on third-party payors to pay for, or subsidize, their medical needs. If third-party payors do not provide coverage or reimbursement for any products that
we
may develop, our revenues and prospects for profitability will suffer. In addition, even if third-party payors provide some coverage or reimbursement for our products, the availability of such
coverage or reimbursement for prescription drugs under private health insurance and managed care plans often varies based on the type of contract or plan purchased.
Another factor that may negatively affect the pricing of drugs is any action regarding drug reimportation into the United States. For example,
the Medicare Prescription Drug, Improvement and Modernization Act of 2003 gives discretion to the Secretary of Health and Human Services to allow drug reimportation into the United States under some circumstances from foreign countries, including
countries where drugs are sold at a lower price than in the United States. Proponents of drug reimportation may attempt to pass additional legislation, which would allow direct reimportation under certain circumstances. If legislation or regulations
were passed allowing the reimportation of drugs, it could decrease the price we receive for any products that we may develop, thereby negatively affecting our revenues and prospects for profitability.
In addition, in some foreign countries, particularly the countries in the European Union, the pricing of prescription pharmaceuticals is
subject to governmental control. In these countries, price negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement and/or pricing
approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our drug candidates or products to other available therapies. The conduct of such a clinical trial could be expensive and result in
delays in the commercialization of our drug candidates. Third-party payors are challenging the prices charged for medical products and services, and many third-party payors limit reimbursement for newly approved health care products. In particular,
third-party payors may limit the indications for which they will reimburse patients who use any products that we may develop. Cost-control initiatives could decrease prices we might establish for products that we may develop, which would result in
lower product revenues to us.
Current and future healthcare laws and regulations may negatively affect our revenues and prospects
for profitability.
A primary trend in the United States and some foreign countries is toward reform and cost containment in the
health care industry. The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals that may have the effect of reducing the prices that we are able to charge for products we
develop. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA, substantially modifies the framework by which healthcare is financed by
both governmental and private insurers in the United States. A number of provisions contained in the PPACA have the potential to significantly affect the pharmaceutical industry, including:
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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs, apportioned among these entities according to their market share in certain governmental health programs;
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expansion of eligibility criteria and increases in the rebates manufacturers must pay under certain Medicaid programs; |
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a new Medicare Part D coverage program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during any coverage gap period, as
a condition for the manufacturers outpatient drugs to be covered under Medicare Part D; |
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and |
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certain reporting requirements relating to financial arrangements with, and drug samples provided to, physicians. |
The PPACA and other healthcare reform measures which may be adopted in the future in the United
States and foreign jurisdictions may result in more rigorous coverage criteria and significant downward pressure on the prices drug manufacturers may charge. As a result, our revenues and prospects for profitability could be significantly harmed.
Our competitors may develop products that make our products obsolete.
The biotechnology industry is highly fragmented and is characterized by rapid technological change. We face, and will continue to face,
intense competition from biotechnology and pharmaceutical companies, as well as academic research institutions, clinical reference laboratories and government agencies that are pursuing research and development activities similar to ours. In
addition, significant delays in the development of our drug candidates could allow our competitors to bring products to market before us, which would impair our ability to commercialize our drug candidates. Any products that we develop will compete
in highly competitive markets. Further, our competitors may be more effective at using their technologies to develop commercial products. Many of the organizations competing with us have greater capital resources, larger research and development
staff and facilities, more experience in obtaining regulatory approvals and more extensive product manufacturing and marketing capabilities. As a result, our competitors may be able to more easily develop products that would render our products, and
those of our collaborators, obsolete and noncompetitive. For example, drug candidates are currently being developed by other pharmaceutical companies for the treatment of type 2 diabetes that act through SGLT2, one of the targets of sotagliflozin,
which are in more advanced stages of development than sotagliflozin or have been approved for commercial sale by the FDA or other regulatory agencies. In addition, there may be drug candidates of which we are not aware at an earlier stage of
development that may compete with our drug candidates.
We may not be able to manufacture our drug candidates in commercial
quantities, which would prevent us from commercializing our drug candidates.
To date, our drug candidates have been manufactured
in small quantities for nonclinical and clinical trials. If any of these drug candidates are approved by the FDA or other regulatory agencies for commercial sale, we will need to manufacture them in larger quantities. We may not be able to
successfully increase the manufacturing capacity, whether in collaboration with third-party manufacturers or on our own, for any of our drug candidates in a timely or economic manner, or at all. Significant scale-up of manufacturing may require
additional validation studies, which the FDA must review and approve. If we are unable to successfully increase the manufacturing capacity for a drug candidate, the regulatory approval or commercial launch of that drug candidate may be delayed or
there may be a shortage in supply. Our drug candidates require precise, high-quality manufacturing. The failure to achieve and maintain these high manufacturing standards, including the incidence of manufacturing errors, could result in patient
injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously hurt our business.
Risks related to our relationships with third parties
We are dependent in many ways upon our collaborations with major pharmaceutical companies, including Ipsen. If we are unable to establish
new collaborations, if milestones are not achieved under our collaborations or if our collaborators efforts fail to yield pharmaceutical products on a timely basis, our opportunities to generate revenues and earn royalties will be reduced.
We have derived a substantial majority of our revenues to date from collaborative drug discovery and development alliances with a
limited number of major pharmaceutical companies, including Ipsen. In addition,
we currently intend to seek a collaboration partner for Phase 3 development of sotagliflozin in type 2 diabetes and we cannot be certain that we will be successful in establishing such a
collaborative alliance on terms acceptable to us, if at all.
Future revenues from our existing drug discovery and development alliances
depend upon the achievement of milestones and payment of royalties we earn from any future products developed under the collaborations. If our relationship terminates with any of our collaborators, our reputation in the business and scientific
community may suffer and revenues will be negatively impacted to the extent such losses are not offset by additional collaboration agreements. If milestones are not achieved under our collaborations or our collaborators are unable to successfully
develop products from which royalties are payable, we will not earn the revenues contemplated by those drug discovery and development collaborations. In addition, some of our alliances are exclusive and preclude us from entering into additional
collaborative arrangements with other parties in the field of exclusivity.
We have limited or no control over the resources that any
collaborator may devote to the development and commercialization of products under our alliances. Any of our present or future collaborators may not perform their obligations as expected. These collaborators may breach or terminate their agreements
with us or otherwise fail to conduct discovery, development or commercialization activities successfully or in a timely manner. Further, our collaborators may elect not to develop pharmaceutical products arising out of our collaborative arrangements
or may not devote sufficient resources to the development, approval, manufacture, marketing or sale of these products. If any of these events occurs, we may not be able to develop or commercialize potential pharmaceutical products.
Conflicts with our collaborators could jeopardize the success of our collaborative agreements and harm our product development efforts.
We may pursue opportunities in specific disease and therapeutic modality fields that could result in conflicts with our
collaborators, if any of our collaborators takes the position that our internal activities overlap with those activities that are exclusive to our collaboration. Moreover, disagreements could arise with our collaborators over rights to our
intellectual property or our rights to share in any of the future revenues of compounds or therapeutic approaches developed by our collaborators. Any conflict with or among our collaborators could result in the termination of our collaborative
agreements, delay collaborative research or development activities, impair our ability to renew or obtain future collaborative agreements or lead to costly and time consuming litigation. Conflicts with our collaborators could also have a negative
impact on our relationship with existing collaborators, materially impairing our business and revenues. Some of our collaborators are also potential competitors or may become competitors in the future. Our collaborators could develop competing
products, preclude us from entering into collaborations with their competitors or terminate their agreements with us prematurely. Any of these events could harm our product development efforts.
We rely on third parties to carry out drug development activities.
We rely on clinical research organizations and other third party contractors to carry out many of our drug development activities, including
the performance of nonclinical laboratory and animal tests under the FDAs current Good Laboratory Practices regulations and the conduct of clinical trials of our drug candidates in accordance with protocols we establish. If these third parties
do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, our drug development activities may be delayed, suspended or terminated. Such a failure by these third parties could significantly impair
our ability to develop and commercialize the affected drug candidates.
We lack the capability to manufacture materials for nonclinical studies, clinical trials or
commercial sales and rely on third parties to manufacture our drug candidates, which may harm or delay our product development and commercialization efforts.
We currently do not have the manufacturing capabilities or experience necessary to produce materials for nonclinical studies, clinical trials
or commercial sales and intend in the future to continue to rely on collaborators and third-party contractors to produce such materials. We will rely on selected manufacturers to deliver materials on a timely basis and to comply with applicable
regulatory requirements, including the current Good Manufacturing Practices of the FDA, which relate to manufacturing and quality control activities. These manufacturers may not be able to produce material on a timely basis or manufacture material
at the quality level or in the quantity required to meet our development timelines and applicable regulatory requirements. In addition, there are a limited number of manufacturers that operate under the FDAs current Good Manufacturing
Practices and that are capable of producing such materials, and we may experience difficulty finding manufacturers with adequate capacity for our needs. If we are unable to contract for the production of sufficient quantity and quality of materials
on acceptable terms, our product development and commercialization efforts may be delayed. Moreover, noncompliance with the FDAs current Good Manufacturing Practices can result in, among other things, fines, injunctions, civil and criminal
penalties, product recalls or seizures, suspension of production, failure to obtain marketing approval and withdrawal, suspension or revocation of marketing approvals.
Risks related to our intellectual property
If we are unable to adequately protect our intellectual property, third parties may be able to use our products and technologies, which
could adversely affect our ability to compete in the market.
Our success will depend in part upon our ability to obtain patents
and maintain adequate protection of the intellectual property related to our products and technologies. The patent positions of biotechnology companies, including our patent position, are generally uncertain and involve complex legal and factual
questions. We will be able to protect our intellectual property rights from unauthorized use by third parties only to the extent that our products and technologies are covered by valid and enforceable patents or are effectively maintained as trade
secrets. We will continue to apply for patents covering our products and technologies as and when we deem appropriate. Pending patent applications do not provide protection against competitors because they are not enforceable until they issue as
patents. Further, the disclosures contained in our current and future patent applications may not be sufficient to meet statutory requirements for patentability. Once issued, patents still may not provide commercially meaningful protection. Our
existing patents and any future patents we obtain may not be sufficiently broad to prevent others from developing competing products and technologies. Furthermore, others may independently develop similar or alternative products or technologies or
design around our patents. If anyone infringes upon our or our collaborators patent rights, enforcing these rights may be difficult, costly and time-consuming and, as a result, it may not be cost-effective or otherwise expedient to pursue
litigation to enforce those patent rights. In addition, our patents may be challenged or invalidated or may fail to provide us with any competitive advantages, if, for example, others were the first to invent or to file patent applications for these
inventions.
Because patent applications can take many years to issue, there may be currently pending applications which may later result
in issued patents that cover the production, manufacture, commercialization or use of our drug targets or drug candidates. If any such patents are issued to other entities, we will be unable to obtain patent protection for the same or similar
discoveries that we make relating to our drug targets or drug candidates. Moreover, we may be blocked from using our drug targets or drug candidates or developing or commercializing our drug candidates, or may be required to obtain a license that
may not be available on reasonable terms, if at
all. Further, others may discover uses for our drug targets and drug candidates other than those covered in our issued or pending patents, and these other uses may be separately patentable. Even
if we have a patent claim on a particular technology or product, the holder of a patent covering the use of that technology or product could exclude us from selling a product that is based on the same use of that product.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many
companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to
grant licenses to third parties (for example, if the patent owner has failed to work the invention in that country or the third party has patented improvements). In addition, many countries limit the enforceability of patents against
government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Compulsory licensing of life-saving drugs is also becoming increasingly popular
in developing countries either through direct legislation or international initiatives. Such compulsory licenses could be extended to include some of our drug candidates, which could limit our potential revenue opportunities. Moreover, the legal
systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other intellectual property protection, which makes it difficult to stop infringement.
We rely on trade secret protection for our confidential and proprietary information. We have taken security measures to protect our
proprietary information and trade secrets, but these measures may not provide adequate protection. While we seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators and consultants, we
cannot assure you that our proprietary information will not be disclosed, or that we can meaningfully protect our trade secrets. In addition, our competitors may independently develop substantially equivalent proprietary information or may otherwise
gain access to our trade secrets.
We may be involved in patent litigation and other disputes regarding intellectual property rights
and may require licenses from third parties for our planned nonclinical and clinical development and commercialization activities. We may not prevail in any such litigation or other dispute or be able to obtain required licenses.
Our nonclinical and clinical development efforts as well as our potential products and those of our collaborators may give rise to claims that
they infringe the patents of others. We are aware that other companies and institutions are developing products acting through the same drug targets through which some of our drug candidates currently in clinical development act, have conducted
research on many of the same targets that we have identified and have filed patent applications potentially covering drug targets that we have identified and certain therapeutic products addressing such targets. In some cases, patents have issued
from these applications. In addition, many companies and institutions have well-established patent portfolios directed to common techniques, methods and means of developing, producing and manufacturing pharmaceutical products. These or other
companies or institutions could bring legal actions against us or our collaborators for damages or to stop us or our collaborators from engaging in certain nonclinical or clinical development activities or from manufacturing and marketing
therapeutic products that allegedly infringe their patent rights. If any of these actions are successful, in addition to our potential liability for damages, these entities would likely require us or our collaborators to obtain a license in order to
continue engaging in the infringing activities or to manufacture or market the infringing therapeutic products or may force us to terminate such activities or manufacturing and marketing efforts.
We may need to pursue litigation against others to enforce our patents and intellectual property rights and may be the subject of litigation
brought by third parties to enforce their patent and intellectual property rights. In addition, we may become involved in litigation based on intellectual property indemnification undertakings that
we have given to certain of our collaborators. Patent litigation is expensive and requires substantial amounts of management attention. The eventual outcome of any such litigation is uncertain
and involves substantial risks.
We believe that there will continue to be significant litigation in our industry regarding patent and
other intellectual property rights. We have expended and many of our competitors have expended and are continuing to expend significant amounts of time, money and management resources on intellectual property litigation. If we become involved in
future intellectual property litigation, it could consume a substantial portion of our resources and could negatively affect our results of operations.
We have not sought patent protection outside of the United States for some of our inventions, and some of our licensed patents only
provide coverage in the United States. As a result, our international competitors could be granted foreign patent protection with respect to our discoveries.
We have decided not to pursue patent protection with respect to some of our inventions outside the United States, both because we do not
believe it is cost-effective and because of confidentiality concerns. Accordingly, our international competitors could develop, and receive foreign patent protection for, genes or gene sequences, uses of those genes or gene sequences, gene products
and drug targets, assays for identifying potential therapeutic products, potential therapeutic products and methods of treatment for which we are seeking United States patent protection.
We may be subject to damages resulting from claims that we, our employees or independent contractors have wrongfully used or disclosed
alleged trade secrets of their former employers.
Many of our employees and independent contractors were previously employed at
universities, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, independent contractors or we have inadvertently or otherwise used or disclosed
trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and
divert managements attention. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key research personnel and/or their work product could hamper or
prevent our ability to commercialize certain drug candidates, which could severely harm our business.
Risks related to employees, advisors and
facilities operations
The loss of key personnel or the inability to attract and retain additional personnel could impair our
ability to expand our operations.
We are highly dependent upon the principal members of our management and scientific staff, the
loss of whose services might adversely impact the achievement of our objectives. Recruiting and retaining qualified medical, clinical and scientific personnel will be critical to support activities related to advancing our nonclinical and clinical
development programs, and to support our collaborative arrangements. Competition is intense for experienced medical and clinical personnel, in particular, and we may be unable to retain or recruit medical and clinical personnel with the expertise or
experience necessary to allow us to pursue collaborations, develop our products or expand our operations to the extent otherwise possible. Further, all of our employees are employed at will and, therefore, may leave our employment at any
time.
Our collaborations with outside scientists may be subject to restriction and change.
We work with scientific and clinical advisors and collaborators at academic and other institutions that assist us in our nonclinical and
clinical development efforts. These advisors and collaborators are not our employees and may have other commitments that limit their availability to us. Although these advisors and collaborators
generally agree not to perform competing work, if a conflict of interest between their work for us and their work for another entity arises, we may lose their services. In such a circumstance,
our development efforts with respect to the matters on which they were working may be significantly delayed or otherwise adversely affected. In addition, although our advisors and collaborators sign agreements not to disclose our confidential
information, it is possible that valuable proprietary knowledge may become publicly known through them.
Security breaches may
disrupt our operations and harm our operating results.
Our network security and data recovery measures may not be adequate to
protect against computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. The misappropriation, theft, sabotage or any other type of security breach with respect to any of our proprietary and
confidential information that is electronically stored, including research or clinical data, could have a material adverse impact on our business, operating results and financial condition. Additionally, any break-in or trespass of our facilities
that results in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential information, including research or clinical data, or that results in damage to our research and development
equipment and assets could have a material adverse impact on our business, operating results and financial condition.
Risks related to environmental
and product liability
We use hazardous chemicals and radioactive and biological materials in our business. Any claims relating
to improper handling, storage or disposal of these materials could be time consuming and costly.
Our research and development
processes have historically involved the controlled use of hazardous materials, including chemicals and radioactive and biological materials. Our operations have produced hazardous waste products. We cannot eliminate the risk of accidental
contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We may face liability for any injury or
contamination that results from our use or the use by third parties of these materials, and such liability may exceed our insurance coverage and our total assets. Compliance with environmental laws and regulations may be expensive, and current or
future environmental regulations may impair our research, development and production efforts.
In addition, our collaborators may use
hazardous materials in connection with our collaborative efforts. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous materials used by
these parties. Further, we may be required to indemnify our collaborators against all damages and other liabilities arising out of our development activities or products produced in connection with these collaborations.
We may be sued for product liability.
We or our collaborators may be held liable if any product that we or our collaborators develop, or any product that is made with the use or
incorporation of any of our technologies, causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Although we currently have and intend to maintain product liability insurance, this insurance may
become prohibitively expensive or may not fully cover our potential liabilities. Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit
the commercialization of products developed by us or our collaborators. If we are sued for any injury caused by our or our collaborators products, our liability could exceed our total assets.
Risks related to our common stock
Invus and its affiliates own a controlling interest in our outstanding common stock and may have interests which conflict with those of
our other stockholders.
Invus and its affiliates currently own approximately 55.0% of the outstanding shares of our common stock
and are thereby able to control the election and removal of our directors and determine our corporate and management policies, including potential mergers or acquisitions, asset sales, the amendment of our articles of incorporation or bylaws and
other significant corporate transactions. This concentration of ownership may delay or deter possible changes in control of our company, which may reduce the value of an investment in our common stock. The interests of Invus and its affiliates may
not coincide with the interests of other holders of our common stock.
Conversion of the notes sold in the concurrent notes offering
may dilute the ownership interest of our existing stockholders, including holders who had previously converted their notes, or may otherwise depress the price of our common stock.
The conversion of some or all of the notes sold in the concurrent notes offering will dilute the ownership interests of existing stockholders
to the extent we deliver shares upon conversion of any of the notes. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of
the notes may encourage short selling by market participants because the conversion of the notes could be used to satisfy short positions, or anticipated conversion of the notes into shares of our common stock could depress the price of our common
stock.
Invus has additional rights under our stockholders agreement with Invus, L.P. which provides Invus with substantial
influence over certain significant corporate matters.
Under our stockholders agreement with Invus, L.P., Invus has the
right to designate a number of directors equal to the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates, rounded up to the nearest whole number of directors. Invus has designated three of the nine current
members of our board of directors. While Invus has not presently exercised its director designation rights in full, it may exercise them at any time in the future in its sole discretion. To facilitate the exercise of such rights, we have agreed,
upon written request from Invus, to take all necessary steps in accordance with our obligations under the stockholders agreement to (1) increase the number of directors to the number specified by Invus (which number shall be no greater
than reasonably necessary for the exercise of Invus director designation rights under the stockholders agreement) and (2) cause the appointment to the newly created directorships of directors so designated by Invus pursuant to its
rights under the stockholders agreement.
Invus also has the right to require proportionate representation of Invus-appointed
directors on the audit, compensation and corporate governance committees of our board of directors, subject to certain restrictions. Invus-designated directors currently serve as one of the three members of each of the compensation committee and the
corporate governance committee of our board of directors. No Invus-designated directors currently serve on the audit committee of our board of directors.
The provisions of the stockholders agreement relating to Invus rights to designate members of our board of directors and its
audit, compensation and corporate governance committees will terminate if the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates falls below 10%. Invus also has the right to terminate these provisions at
any time in its discretion.
Invus has preemptive rights under the stockholders agreement to participate in future equity issuances
by us, subject to certain exceptions, so as to maintain its then-current percentage ownership of our capital stock. Subject to certain limitations, Invus will be required to exercise its preemptive rights in advance with respect to certain marketed
offerings, in which case it will be obligated to buy its pro rata share of the number of shares
being offered in such marketed offering, including any overallotment (or such lesser amount specified in its exercise of such rights), so long as the sale of the shares were priced within a range
within 10% above or below the market price on the date we notified Invus of the offering and we met certain other conditions. Artals purchase of shares of our common stock in the concurrent private placement satisfies Invus preemptive
rights with respect to the issuance of common stock pursuant to this prospectus supplement. Invus has waived its preemptive right with respect to the concurrent convertible notes offering and the issuance of common stock upon conversion of such
notes.
The provisions of the stockholders agreement relating to preemptive rights will terminate on the earlier to occur of
August 28, 2017 and the date on which the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates falls below 10%.
Invus is entitled to certain consent rights under the stockholders agreement, including with respect to (a) the creation or
issuance of any new class or series of shares of our capital stock (or securities convertible into or exercisable for shares of our capital stock) having rights, preferences or privileges senior to or on parity with our common stock, (b) any
amendment to our certificate of incorporation or bylaws, or amendment to the certificate of incorporation or bylaws of any of our subsidiaries, in a manner adversely affecting Invus rights under the securities purchase agreement and the
related agreements, (c) the repurchase, retirement, redemption or other acquisition of our or our subsidiaries capital stock (or securities convertible into or exercisable for shares of our or our subsidiaries capital stock),
(d) any increase in the size of our board of directors to more than 12 members and (e) the adoption or proposed adoption of any stockholders rights plan, poison pill or other similar plan or agreement, unless Invus is
exempt from the provisions of such plan or agreement.
The provisions of the stockholders agreement relating to those consent rights
will terminate on the earlier to occur of August 28, 2017 and the date on which Invus and its affiliates hold less than 15% of the total number of outstanding shares of our common stock.
Our stock price may be extremely volatile.
The trading price of our common stock has been highly volatile, and we believe the trading price of our common stock will remain highly
volatile and may fluctuate substantially due to factors such as the following:
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adverse results or delays in clinical trials; |
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announcement of FDA approval or non-approval, or delays in the FDA review process, of our or our collaborators product candidates or those of our competitors or actions taken by regulatory agencies with respect to
our, our collaborators or our competitors clinical trials; |
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the announcement of new products by us or our competitors; |
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quarterly variations in our or our competitors results of operations; |
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conflicts or litigation with our collaborators; |
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litigation, including intellectual property infringement and product liability lawsuits, involving us; |
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failure to achieve operating results projected by securities analysts; |
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changes in earnings estimates or recommendations by securities analysts; |
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financing transactions; |
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developments in the biotechnology or pharmaceutical industry; |
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sales of large blocks of our common stock or sales of our common stock by our executive officers, directors and significant stockholders; |
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departures of key personnel or board members; |
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developments concerning current or future collaborations; |
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FDA or international regulatory actions; |
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third-party reimbursement policies; |
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acquisitions of other companies or technologies; |
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disposition of any of our subsidiaries, drug programs or other technologies; and |
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other factors, including factors unrelated to our operating performance or the operating performance of our competitors. |
These factors, as well as general economic, political and market conditions, may materially adversely affect the market price of our common
stock.
In the past, following periods of volatility in the market price of a companys securities, securities class action
litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert managements attention and resources, which could have a material and adverse effect on our business.
We may engage in future acquisitions, which may be expensive and time consuming and from which we may not realize anticipated benefits.
We may acquire additional businesses, technologies and products if we determine that these businesses, technologies and products
complement our existing technology or otherwise serve our strategic goals. If we do undertake any transactions of this sort, the process of integrating an acquired business, technology or product may result in operating difficulties and expenditures
and may not be achieved in a timely and non-disruptive manner, if at all, and may absorb significant management attention that would otherwise be available for ongoing development of our business. If we fail to integrate acquired businesses,
technologies or products effectively or if key employees of an acquired business leave, the anticipated benefits of the acquisition would be jeopardized. Moreover, we may never realize the anticipated benefits of any acquisition, such as increased
revenues and earnings or enhanced business synergies. Future acquisitions could result in potentially dilutive issuances of our equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible
assets, which could materially impair our results of operations and financial condition.
Future sales of our common stock may
depress our stock price.
If our stockholders sell substantial amounts of our common stock (including shares issued upon the
exercise of options) in the public market, the market price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
For example, following an acquisition, a significant number of shares of our common stock held by new stockholders may become freely tradable or holders of registration rights could cause us to register their shares for resale. Sales of these shares
of common stock held by existing stockholders could cause the market price of our common stock to decline.
If we are unable to meet
Nasdaq continued listing requirements, Nasdaq may take action to delist our common stock.
Our common stock trades on The Nasdaq
Global Select Market, which has qualitative and quantitative listing criteria, including operating results, net assets, corporate governance, minimum trading price and minimums
for public float, which is the amount of stock not held by our affiliates. If we are unable to meet Nasdaq continued listing requirements, Nasdaq may take action to delist our common stock. A
delisting of our common stock could negatively impact us and our shareholders by reducing the liquidity and market price of our common stock and potentially reducing the number of investors willing to hold or acquire our common stock.
Risks related to this offering
We
have broad discretion in the use of the net proceeds from this offering, the concurrent private placement and the concurrent notes offering and may not use them effectively.
As of the date of this prospectus supplement, we cannot specify with certainty the particular uses for the net proceeds we will receive from
this offering, the concurrent notes offering or the concurrent private placement of shares of our common stock to Invus, if any. We will have broad discretion in the application of the net proceeds, including any of the purposes described in
Use of proceeds. Any failure by us to apply these funds effectively could have a material adverse effect on our business.
Provisions contained in our charter documents and Delaware law may inhibit a takeover attempt, which could reduce or eliminate the
likelihood of a change of control transaction and, therefore, the ability of our stockholders to sell their shares for a premium.
Provisions in our corporate charter and bylaws and applicable provisions of the Delaware General Corporation Law may make it more difficult
for a third party to acquire control of us without the approval of our board of directors. These provisions include:
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a classified board of directors; |
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limitations on the removal of directors; |
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limitations on stockholder proposals at meetings of stockholders; |
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the inability of stockholders to act by written consent or to call special meetings; and |
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the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval. |
These provisions may discourage transactions that otherwise could involve the payment of a premium over prevailing market prices of our common
stock. Under certain circumstances, these provisions could reduce the market price of our common stock.
The availability of shares
of our common stock for future sale could depress our stock price.
Upon completion of this offering and the concurrent private
placement, we will have outstanding an aggregate of shares of common stock assuming no issuance of additional shares pursuant to the exercise of outstanding stock options or vesting of outstanding restricted stock units or the issuance of shares of
common stock upon conversion of the notes to be offered and sold in the concurrent notes offering. Sales of a substantial number of shares of our common stock in the public markets following this offering, or the perception that such sales might
occur, could have a material adverse effect on the price of our common stock or could impair our future ability to obtain capital through offerings of our equity securities.
Our executive officers, directors and Invus have agreed pursuant to lock-up agreements that, subject to certain exceptions, for a
period of 90 days from the date of this prospectus supplement, they will not sell any shares of common stock without the prior written consent of J.P. Morgan Securities LLC and Goldman, Sachs & Co. See Underwriting.
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